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EUR/USD: Trading the German IFO May 2013

The German Ifo Business Climate is a monthly composite index of about 7,000 businesses, which are surveyed about current business conditions and their expectations concerning economic performance over the next six months.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Friday at 8:00 GMT.

 

Indicator Background

The German Ifo Business Climate, a leading economic indicator,  is an excellent barometer of the expectations of businesses for the next 6 months. An unexpected reading can have a major impact on the movement of EUR/USD.

The index has been on a downward trend since  February. The previous reading came in at 104.4 points, well below the estimate of 106.4 points. The markets are not expecting much change, with the estimate  for the May release standing at 104.6 points. Will the index rebound and beat the prediction?

Sentiments and levels

The weak GDP numbers out of the Eurozone confirm the economic weakness of bloc once again. Adding the incessant talk about negative rates and even the call for the ECB to “manage the euro lower“, and we have a recipe for more euro weakness. The only light in the darkness is the Japanese ignited flows to peripheral bonds support the euro.

In the US, we   continue to see a mixed bag of numbers – some figures are better, and some are worse. Yet all in all, the economy is growing, market sentiment is positive  and there are more signs that the Fed might change course: Williams, a dove on the Fed, began talking about unwinding QE, beginning this summer. Fed Chair Bernanke stated that QE could wind up if US economic conditions improve, and this kind of talk is certainly dollar positive. So, the overall sentiment remains bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.30, 1.2960, 1.2890, 1.2840, 1.2750 and  1.27.

 

5 Scenarios

  1. Within expectations: 101.0 to 108.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 108.1 to 111.0: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above 111.0: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
  4. Below expectations: 98.0.0 to 100.9: A lower reading than forecast may push the pair below one support level.
  5. Well below expectations: Under 98.0:  A very weak reading could shake up the markets and we could see EUR/USD drop below two or more support lines.

For more on the Euro, see the  EUR/USD forecast.

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Kenny Fisher

Kenny Fisher

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.